North Korean Economy Watch

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-11-30
11/30/2010

North Korea has recently revised the Pyongyang City Management Law in order to support ongoing modernization efforts by increasing the management and operational authority of the Cabinet and of the State Planning Committee. On October 21, the Cabinet newspaper ‘Minju Chosun’ ran an article emphasizing the need to ensure that necessary capital and supplies were guaranteed for the construction of 100,000 new residences in Pyongyang and now it appears the North is backing up this modernization drive with the law.

The legal code was revised in accordance with Order No. 743, passed down by the standing committee of the Supreme People’s Assembly on March 30 of this year, but was just recently made public in South Korea. What stands out in this newly revised law is that the central government has strengthened its hold on management and operations within the city.

Article 47 of the city management law states, “The Cabinet must naturally take control of and supervise Pyongyang management operations,” and Article 48 stipulates that the State Planning Committee and the Pyongyang People’s Committee establish and strictly follow detailed plans for each sector of management operations within the capital city. Article 47, of the former law (enacted on 26 Nov. 1998), which covered management projects within Pyongyang, was removed while five new articles were added. Article 17 covers housing construction, Article 27 covers management of street lighting, Article 43 covers the delivery of publications, Article 46 stipulates basic working conditions, and Article 51 guarantees that goods will be produced for Pyongyang markets.

Article 17 stipulates that “the construction of housing must completely guaranteed,” and Article 51 states that planning for and production of commercial goods for Pyongyang must be ensured “without fail.” Housing, goods, electricity, capital and other necessities for the modernization of Pyongyang have now been essentially legally guaranteed. New housing in the capital has been a priority for the North, with construction already underway and plans for 30,000 additional units next year and 35,000 more in 2012. In order to show off these new renovations day and night, Article 27 calls for the “logical installation of street lights” to brighten walkways, roads, and national monuments. The new legal revision appears to be yet another step toward shoring up the framework for establishment of a ‘Strong and Prosperous Nation’ and transition of power to yet a third generation of Kims.

The new law reinforces Pyongyang’s centrality in North Korea’s revolutionary ambitions, referring to the capital as “the home of Juche,” “the heart of the Korean people,” and “the face of the nation.”

Institute for Far Eastern Studies (IFES)

NK Brief No. 10-11-26-1
11/26/2010

North Korea has recently revised its law governing the planning of the People’s Economy, significantly strengthening the state’s ability to oversee and control economic activities throughout the country. The South Korean Ministry of Unification recently released the contents of the law, which the North revised on April 6, as well as details of two laws created by the Supreme People’s Committee Standing Committee on July 8; the Law on Labor Protection (Order 945) and the Chamber of Commerce Law (Order 946).

The new law on economic planning contains seven new articles, but since the details of the August 2009 revision were never made public, it is unclear when the new articles were added. What is clear, however, is how different the new law is when compared to the Law on Planning the People’s Economy that was passed in May, 2001 and the Economic Management Reform Measure enacted on July 1, 2002, both of which significantly boosted the autonomy of business managers and eased government restrictions on economic activity.

With the July 1 Measure, the authority of the National Economic Planning Committee was downgraded, central allocations were graduated based on managerial autonomy and profits, the central rationing system was dismantled, and wages were increased. While the economic planning law of 2001 and the July 1 Measure of 2002 eased restrictions on, and oversight of, the people’s economy, the newly-revised law strengthens state control. The new law appears to not only return but also bolster the central control mechanisms that were eliminated by the 2001 law.

Article 16 of the new law states that the planned economy will be based on prepared figures, while Article 18 states that enterprises, organizations and companies will operate on the principle of ensuring regulated numbers, and Article 24 requires the people’s economic plan, drafted by the Cabinet, State Planning Organization, and regional authorities, to be broken down in detail, by timeframe and indexes, and distributed to enterprises, organizations and companies by the end of October. The planning law passed in 2001 called for economic plans to be drawn up based on production statistics provided from ‘below’ and passed up through chains of command (Article 17), but this has been eliminated from the new law.

With the revision of the law on labor protection, North Korea has added more specific language to Article 12 of the ‘Socialist Labor Law’, which was established in April 1978. Article12 of the Law on Labor Protection states that the protection of laborers’ work is the primary demand of the socialist system, which sees the people as the most precious resource. The law strengthens the role of the state in protecting laborers, and identifies ‘difficult and strenuous’ jobs, including mining, fishing, and earthquake investigation. Workers in these fields are to be given favorable treatment, including the issuance of additional clothing, food and other rations.

In addition, the law covers the installation and maintenance of safety equipment, the issuance of protective gear, and additional protections for female workers. It also restricts work to eight hours per day and guarantees holidays and time off, health care, and protection of property. These and other articles in the law increase state management of workers, but defector testimonies paint a different picture. Most workers save their wages with the assumption that they will have to pay bribes, medical costs and other expenses out-of-pocket.

The law on commercial activity further details the ‘Chamber of Commerce Regulation’ handed down by the Cabinet in 2008. The law covers a range of duties and rights regarding commercial operations, including contracts and operations regarding joint ventures with foreign firms; legal letters of confirmation, certificates of country of origin and other paperwork related to trade issues; as well as exhibitions and conventions held in conjunction with foreign businesses.

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-11-22-1
11/22/2010

The Chosun Sinbo reported on November 15 that North Korea has erected hundreds of cellular signal towers throughout the country, providing phone service to every province, city, and town in North Korea. According to the report, the expansion of the North’s 3G network has really taken off in 2010, and the number of subscribers within the country has grown 2.5 times in the latter half of the year, as has the available coverage area.

This initiative has focused on setting up hundreds of cell towers near major highways, cities, and industries important to economic advancement. It was also reported that industry insiders had revealed that not only towns, cities, and provinces were targeted for the expansion of cellular service, but that there was a plan to erect towers in the back country, as well, and that authorities aimed to extend service to every village in the country by next year.

To this end, the Chosun Sinbo reported, the Pyongyang-based DPRK-PRC JV Checom Joint Venture Company has set up a “flow manufacturing process and is producing hundreds of high-performance cellular phones each day” and, “Related sectors are testing new devices and actively working on a project aimed at modifying the operating software to suit the needs of North Koreans.”

The paper also reported that North Korea’s academics and scientists collaborated to develop such a system in a short time, and that the system was also integrated into the nation’s Intranet. This system is different from the previous configuration in that videos, recordings, and text messages can be sent both ways, so that the system better supports an exchange of information rather than merely a transfer.

The paper emphasized that by providing distance education service to every local academic office, city and town library, and science and educational facility, the North has enacted a state-of-the-art, nationwide education system. In addition, by providing the infrastructure for real-time interactive lectures, workers and children in every region of the country can easily pursue their education by actively participating in a wide range of lectures.

According to Voice of America:

The South Korean Unification Ministry’s annual report calls the Sunshine Policy of peaceful engagement with North Korea a failure.

The ministry’s white paper, issued Thursday, contends a decade of cooperation, cross-border exchanges and billions of dollars in aid did not change Pyongyang’s behavior or improve the lives of North Korean citizens.

Lee Jong-joo, a ministry spokeswoman, says South Korea’s goal is to see North Korea prosper, but Seoul must respond appropriately to any provocations from Pyongyang.

Compared with the previous two administrations here, North-South relations have significantly cooled under President Lee Myung-bak.

Mr. Lee, since taking office in 2008, has insisted North Korea give up its pursuit of nuclear weapons if it wants badly needed food and other aid from Seoul.

His conservative government points to North Korea’s continued nuclear programs and this year’s sinking of a South Korean warship as examples of deception by Pyongyang.

The white paper’s publication was delayed six months to include information on the sinking of the Cheonan navy ship in March.

Pyongyang denies responsibility for the sinking. An international investigation concluded the ship was hit by a North Korean torpedo.

Park Young-Ho is a senior research fellow at the government-funded Korea Institute for National Unification. He says Mr. Lee’s administration is trying to establish a relationship based on rules with the North.

Park says this is a shift, in response to four decades of Pyongyang’s questionable attitude towards inter-Korean engagement.

The ministry’s report complains about the lack of progress on other critical issues, including reuniting separated families and the release or information about South Korean prisoners of war, as well as citizens abducted by the North’s agents.

Referring to huge payments Seoul secretly made to Pyongyang to bring about a 2000 summit of the countries’ leaders, the Unification Ministry says any future engagement must be done transparently.

The policy document does stress the importance of dialogue between Seoul and Pyongyang.

On Thursday, Pyongyang sent a message to Seoul saying it is prepared to discuss the status of a jointly run resort in the North when their Red Cross societies hold talks next week.

South Korea’s government has asked Pyongyang to release assets it seized in Seoul’s portion of the Mount Kumgang resort.

Tours to the resort were a rare source of hard currency for the impoverished North. Seoul suspended the program in 2008 when a North Korean guard shot and killed a South Korean tourist near the resort.

Read the full story here:
South Korea Formally Declares End to Sunshine Policy
Voice of America
11/18/2010

According to Bernama:

North Korea has started to mass-produce cellular phones while trying to customize their operating systems to satisfy local needs, Yonhap news agency reported, citing a pro-Pyongyang newspaper as saying.

The report by Chosun Sinbo, run by a group of pro-North Korea residents in Tokyo and monitored in Seoul, came after Cairo-based Orascom Telecom Holding announced earlier this month that its mobile business in the communist state is rapidly expanding.

The number of mobile phone subscribers has at least quadrupled over the period of one year in North Korea, according to Orascom. The expansion doesn’t mean that the regime has eased its rules aimed at restricting the flow of information in and out of the country.

Chosun Sinbo said Monday in its report from Pyongyang that a firm known as Checom Technology Joint Venture Company has set up a “flow manufacturing process and is producing hundreds of high-performance cellular phones each day.”

Checom is a Pyongyang-based electronics and communications company, according to the Web site of Songsang Company, a Dandong, China-based firm that trades with North Korea.

Flow manufacturing is a build-to-order process aimed at minimizing inventory.

“Related sectors are testing new devices and actively working on a project aimed at modifying the operating software to suit the needs of local users,” Chosun Sinbo said.

“Central engineering rooms for mobile communications are also pushing a program to develop software for their main machines to meet the domestic environment.”

The report added that a video calling service has also been made available while “hundreds of base stations” that transmit signals have been set up across the country.

Orascom, which operates jointly with the local Koryolink, had said in its earnings report that video calling “resulted in a high level of demand, especially from the youth segment.”

North Korea first launched a mobile phone service in Pyongyang in November 2002, but banned it after a deadly explosion in the northern Ryongchon train station in April 2004, possibly out of concern that it could be used in a plot against the regime.

In 2008, the country reversed its policy and introduced a 3G mobile phone network in the joint venture with Orascom.

However, the overall “mobile penetration” remains at 1 percent in the country that has a per-capita GDP of US$1,900 and a population of 22.8 million, according to Orascom.

Read the full story here:
North Korea begins mass-producing cell phones to meet local demands
Bernama (Malaysia)
11/15/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-11-13-1
11/13/2010

The construction cost for six inter-Korean cooperative industrial parks like the Kaesong Industrial Complex would carry a construction bill of 44 billion Won. According to “Analysis of Examples of Inter-Korean Cooperation in the Construction Field and the Direction of Industrial Park Development within North Korea,” a recent report by the Construction Economy Research Institute of Korea, “Promotion of the North Korean construction market by the [South Korean] construction industry would not only increase the limited demand for the South Korean construction [field], but will also provide new growth to our economy.”

According to the report, there has been almost no cooperative construction project within the construction field since 1988. On the other hand, tourism, industrial parks, physical fitness and religious projects have provided opportunities for construction companies. These projects generally call for construction equipment, materials, technicians and designs from South Korea, and land, labor, aggregate, etc. from the North. If six industrial parks on the same scale as the KIC were to be built, it would cost 43.09 billion Won. Of this, 4.07 billion won would cover government costs, while the actual cost of construction would be 39.02 billion won.

If the KIC, currently undergoing the first phase of construction, were to complete all three phases of the original plan, the 19.9 square-kilometer complex would house 2,000 businesses. The research institute calls for the completion of phases 2 and 3 in the KIC, as well as the construction of industrial parks at Rajin-Sonbong, Sinuiju, Haeju, Nampo, and Wonsan.

Rajin-Sonbong and Sinuiju are both ‘Free Economic Trade Zones’, and as special administrative zones, they offer large-scale industrial plots in an effort to attract foreign capital. In addition, it was agreed at the second inter-Korean summit, in October 2007, that Haeju would be developed. Furthermore, a light-industrial complex in Nampo, on the West Sea, and a heavy and chemical industry in Wonsan have been established.

The industrial zones, however, constitute only part of the construction demand. Roads and rails connecting the complexes, port facilities, power generation plants, cities to support production workers, and other derivative projects would also need to be constructed. In other words, the building of an industrial zone would lead to significant peripheral construction demand, as well.

Assuming that inter-Korean tensions were eased and North Korea decided to open itself up to the South, if construction on the six industrial zones could begin by the middle of next year, it is expected that they could all be completed by 2021. In addition, the construction and operation of the six zones could provide the impetus for quickly improving the North Korean economy, while also boosting the importance of South Korea to the North’s economy.

In order to see this accomplished, the research institute found that the government needs to boost activity in the KIC; expand the distribution network between the KIC, Kimpo, and Kangwa; guarantee free management authority in the KIC; iron out customs and transportation procedures; ensure a steady supply of North Korean laborers; and strengthen the ties between the KIC and North Korea’s domestic economy.

If, in the future, North Korea is to open its doors to cooperation, it is expected that foreign companies will also participate. Therefore, when considering long-term profits, it is necessary to spur interest in North Korea’s construction market. The research institute suggested that it was also necessary to construct a training center to teach North Korean construction workers the technical skills needed to ensure maximum potential.

Koryo Tours continues to expand tourism opportunities in the DPRK and confirms the mass games will take place in 2011. According to their newsletter:

1. Mass Games (August 1 – Spetember 9, 2011): The performance will take place in the giant May Day Stadium in Pyongyang, DPRK (North Korea). We do not yet know if the show will continue on into October as it usually does so we advise anyone who is keen to see and experience this unique and spectacular show to aim at booking a tour within these dates in order to have a travel experience like no other. TOUR LIST.

2. Hamhung, Rason: We have some very special tours in 2011 we are able to offer to all tourists including those from the US. Hamhung – DPRK’s industrial 2nd city on the east coast Rason – North Korea’s free trade zone with a train exit to Vladivostok.

3. 16 Day Tour: Our new ultimate tour taking in pretty much everywhere it is possible for tourists to visit in North Korea.

4. Cycling Tour: Experince the DPRK by bike.

5. Madagan, Russia: In June we will offer a trip to the Russian province of Magadan, a place so remote that the locals call the rest of Russia ‘the mainland’.

Here is a full list of 2011 tours.

Martyn Williams writes in PC World:

Koryolink, the operator of North Korea’s only 3G cellular network, saw a big jump in subscribers during the third quarter as its network was expanded to cover more of the country.

The company ended September with 301,199 subscribers, a jump of 63 percent in just three months, according to Orascom Telecom. The Egyptian company owns a three-quarter stake in Koryolink.

Quarterly revenue of US$18.4 million was a record while profit was $7.5 million, before accounting for interest payments, taxes, depreciation and amortization. Orascom did not disclose whether Koryolink made a net profit or a loss for the period.

A lot of the growth came from outside the capital city of Pyongyang.

Koryolink expanded its network to cover a twelfth provincial city during the quarter and added tariffs aimed at lower-income users outside of the capital. As a result approximately half of all new subscribers during the quarter came from outside of Pyongyang.

The push to broaden its subscriber base had an effect on the average revenue gained from each subscriber during the period. It was US$15.20 during the quarter, down from $21.50 in the second quarter.

In addition to the capital and provincial cities, the network now covers 42 small cities and 22 highways and railways putting a 3G signal within reach of 75 percent of the population, the company said.

Koryolink plans to expand the network further to 59 small cities by the end of the year. That would push coverage to 91 percent of North Korea’s roughly 24 million people.

Koryolink launched in the final days of 2008, so is approaching the second anniversary of providing 3G services in North Korea. It has one competitor, Sunnet, which runs a second-generation GSM network. Call quality is superior on Koryolink’s network and so it is attracting more users, according to sources in Pyongyang.

I have to admit I am surprised that Koryolink could generate $18.4 million in revenues in just one quarter–much less a $7.5m EBITDA profit!  There is no telling what the actual profit is, but no doubt it will be reinvested into the firm to expand service rather than being repatriated to Egypt.  Once the network is completed, we can expect costs to fall further and profits to make up a larger share of revenues, especially if the North Korean government keeps out pesky competitors as their agreement requires.

So now we know that Pyongyang, Sinuiju, Kanggye, Chongjin, Hamhung, Wonsan, Sariwon, Rajin, Phyongsong, Hyesan, and Haeju are covered by Koryolink.  I am also willing to bet that Nampho and Kaesong are covered. I will try to figure out which other smaller cities are connected.  It sounds like they are now moving out to the county capitals, but it would be interesting to know in which provinces they are focused.

UPDATE: Martyn Williams gave me a link to the Orascom financial reports from where all this data originates.  You can read them here.  He adds revenue, subscription, and pretax profit charts on his blog.

Read the full story here:
Koryolink Logs Big Jump in North Korean Cell Phone Users
PC World
Martyn Williams
11/8/2010

Institute for Far Eastern Studies (IFES)
NK Brief No. 10-11-8-1
11/8/2010

North Korea held an extended meeting of the entire Cabinet in order to discuss the types of projects to be pursued in the last quarter of the year, and to strategize on how these projects should be implemented.

On October 28, the CHOSUN SHINBO reported on an article in the MINJU CHOSUN, which is under the control of the North Korean Cabinet. According to the article, efforts are being made to strongly construct the foundation upon which exemplars of the ‘military-first’ era will be erected. Production lines and facilities in all realms of the People’s Economy need to come into alignment with CNC, and efforts need to be made toward modernization, environmental protection, and reforestation. In particular, the Cabinet has pledged to decisively improve city management and restore socialism in cities and agricultural villages. Efforts will be focused on restoring socialist principles to economic management and ensuring that the centrally planned national economy is implemented.

The newspaper also reported that the North’s Cabinet held discussions on how to successfully fulfill all the goals set for the third quarter while creating a strategy to meet all of the targets set for the annual People’s Economy. It is unknown exactly when this meeting was held, but Premier Choi Yong-rim and other Cabinet members were all in attendance, as were city and town People’s Committee representatives, committee members from factories and farming communities, economic planners, and managers from critical factories and organizations.

As officials discuss economic reforms, the sixth annual autumn Pyongyang International Trade Fair was held from October 18-21, and it saw a greater Chinese presence than the thirteenth annual spring trade fair held last May. This could be the result of Kim Jong Il’s August visit to China. According to the newspaper, seventeen countries were represented by over 140 companies (48 from North Korea, 93 from abroad) — This was three countries and over twenty companies more than were at the spring fair. India participated for the first time this fall.

An official from the trade fair told the newspaper that the increased participation from Chinese companies was a direct result of Kim Jong Il’s recent visit to China’s northeastern region and the improved economic relations between Pyongyang and Beijing that came out of that visit. From machinery and equipment to steel products, electronic goods and light industrial products, food, pharmaceuticals, traditional herbal medicines and chemical products, over 57,000 products in over 2,300 different categories were on display. This is more than 600 categories of goods not seen last year.

Foreign companies participating in the fair signed contracts with North Korean offices for sales, technology exchanges, joint ventures, and investment opportunities, building on the ‘Introduction and Negotiations on the Investment Environment of the Democratic People’s Republic of Korea’ held on October 18.

Writing in the Wall Street Journal, Evan Ramstad notes the following information about Rimjingang and Imjingang:

Japanese publisher Jiro Ishimaru has gotten a lot of attention over the past month for his new English-language book of articles from Rimjingang – the magazine about North Korea that’s written by North Koreans.

Over the past six years, he’s worked closely with a few dozen North Koreans to get insiders’ stories published.

Less well known is the North Korean defector in Seoul, Choi Jin-i, who worked closely with him until recently. She published a Korean version of the magazine while he handled Japanese.

They split earlier this year over funding differences. Mr. Ishimaru’s magazine is commercially-funded while Ms. Choi’s is supported by charitable contributions. Ms. Choi’s magazine now has a slightly different name. It’s called Imjingang.

Their writers are mainly North Koreans with the political and financial ability to visit China, where they can communicate freely.

For both Ms. Choi and Mr. Ishimaru, the biggest challenge is getting contributors to verify the information they report.

Mr. Ishimaru’s favorite scoop came last year. It was a video report that showed a 20-year-old textile factory in the North Korean city of Suncheon, long touted as a showplace industrial plant by North Korea’s state media, is actually unused and crumbling.

“The factory might have only run on opening day when the Great Leader (Kim Jong Il’s father Kim Il Sung) was there,” Mr. Ishimaru says. “There had been rumors inside the country that the factory never ran, but nobody outside the nation confirmed that. Our reporter went there and for the first time filmed the factory in ruins.”

Ms. Choi says her favorite article appeared in the magazine’s first issue in 2007. It was an analysis of North Korea’s economic situation by a high-ranking government official. She said she worked for more than a year to persuade the official to give an interview.

The quality of information in that interview surprised North Korea watchers. “Many South Korean scholars said they didn’t know there was an intellectual in North Korea,” Ms. Choi said.

And the surprise for me: The factory in Sunchon mentioned in the story is the Sunchon Vinalon Complex (not to be confused with the 2.8 Vinalon Complex in Hungnam).  I actually used the video mentioned in this story and matched it up with Google Earth Satellite imagery to confirm it was shot in the DPRK.  You can see the blog post and video here.

Read the Wall Street Journal article here:
North Korea by North Koreans; How the Magazines Work
Wall Street Journal
Evan Ramstad
11/8/2010